Peers in call to halt Scotland Bill until fiscal framework settled

Progress should be halted on the Scotland Bill as it goes through the House of Lords until the devolution fiscal framework has been settled, according to the House of Lords Economic Affairs Committee in a report published today.

The bill is due for second reading in the Lords on 24 November, but the report A Fracturing Union recommends that it does not proceed to committee stage until the devolution fiscal framework is published, as the bill "cannot be properly understood or considered in its absence".

The Scottish and UK Governments are negotiating on the funding of the Scottish budget and how it is adjusted once powers are devolved, the scrutiny of public revenues and spending, borrowing powers, fiscal rules and fiscal institutions.The committee states that this framework will be central to future financial devolution arrangements and Parliament cannot be expected to scrutinise the Scotland Bill without seeing the details.

Its report expresses regret that MPs had no opportunity to scrutinise the fiscal framework before the Scotland Bill passed through the House of Commons, and argues that it should not reach the stage at which amendments can be made in the Lords until the framework is agreed by the UK and Scottish Governments and published.

It concludes that the decision to devolve almost all income tax revenue as well as almost full power to set the rates of tax is unprecedented and something that no other central government has ever done. This has been done with "undue haste" and too little assessment of the economic and political consequences. "It may not be clear to people in Scotland how they fund reserved services and which Government is accountable for them. There is a risk that this will weaken the connection between the Scottish electorate and the UK Government", it states.

Further, the committee does not believe that a "no bailout" rule between the UK and devolved governments would be believed by the markets. Instead the UK and Scottish Governments should agree simple and clear borrowing rules and a maximum ceiling on Scottish Government debt.

Unworkable

And it concludes that the Smith Commission's suggestion that there should be "no detriment" as a result of Scottish or UK Government policy decisions post-devolution "is unworkable and a recipe for continuing conflict".

Regarding the options for how to adjust the block grant to Scotland to take account of the devolution of income tax, the peers state that as it is not currently clear what level of economic risk the Scottish Government should take on alongside its devolved income tax revenues, it is impossible to recommend a preferred option. Again, the lack of a clear fiscal framework agreed by the UK and Scottish Governments is weakening the opportunity for parliamentary scrutiny.

The Barnett formula, they add, is not a sustainable method to calculate funding, particularly in the context of further devolution of tax powers. It should be modernised and replaced with a needs based funding formula for distributing funds to devolved administrations, reflecting the additional needs of Scotland, Wales and Northern Ireland.

To achieve greater transparency and scrutiny of how funding is allocated to the devolved nations, the committee want the Office of Budget Responsibility to scrutinise the funding of devolved governments alongside the Scottish Fiscal Commission in Scotland. In addition the chairs of the Finance Committees of the Westminster and devolved Parliaments should meet regularly to ensure effective and coordinated scrutiny.

Lord Hollick, chairman of the Economic Affairs Committee, commented: "The Scotland Bill has the potential to fundamentally change the UK and impact on us all both politically and economically. It is crucial that what is proposed is stable and sustainable. Parliament is being asked to pass the bill before we are told full details about the fiscal arrangements that will underpin this new era of devolution. That cannot be right.

"We are calling on the progress of the bill to be halted until the details are agreed and published. That would at least allow peers the opportunity that MPs were denied of scrutinising and amending this important legislation as informed participants."

He added: "How the funding arrangements for Scotland will be adjusted to take account of further devolution is a highly technical but crucial issue. Choosing the wrong method could work to Scotland’s detriment.

"This whole process has been done with undue haste and not enough attention to detail or principles. We are calling for a pause until these key issues are addressed. Devolution and the future of the UK are too important for us to legislate in haste and risk repenting at leisure."